Using a Ltd Co for Buying New Property and managing existing ones

by Readers Question

11:06 AM, 30th September 2015
About 3 years ago

Using a Ltd Co for Buying New Property and managing existing ones

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Using a Ltd Co for Buying New Property and managing existing ones

I have large Portfolio of property in the NE and I am looking at a number of avenues to avoid this tax regime from the summer budget.problem

I have no income other than from property, have a very good cashflow and pay high rate tax now,

Yes I could move half of my BTLs to a LTD Co with little CGT or Stamp Duty to pay as half of my BTLs have been purchased since 2008 and there has been little Capital growth since then in the NE.

Even if this new evil tax had not come around the corner I would have thought of using a LTD co for future purchases. This would give me the option to bring my family into the Ltd Co via Shares Wife ,Son and Grandchildren.

Now I need to inflate my expenses on Management and Repairs to reduce the Taxable cash in my BTL business. My plan is to use my Co to do all the repairs for my BTLs
so lets say I have a repair cost on BTL of £100.00 my Ltd Co would do the repair with the help of a tradesman charge of say 25%. My BTL would then have an invoice for £125.00

The effect would be a larger Repair Bill for my BTL and My Ltd Co would have a profit of £25.00.

As I am 57 pensions would be a good choice for My LTD Co to fund my pension etc which is tax efficient.

Is this sort of arrangement legal and do others see any problems with the arrangement

Regards

DL



Comments

Neil Patterson

11:21 AM, 30th September 2015
About 3 years ago

Hi DL,

When transferring to a limited company you need to carefully consider the Linked transaction rules for Stamp duty.

From .gov site below: https://www.gov.uk/guidance/sdlt-linked-purchases-or-transfers

When 2 or more property transactions involve the same buyer and seller, they count as ‘linked’ for SDLT. HM Revenue and Customs (HMRC) may count people connected to a buyer or seller as being the same buyer or seller.

If 2 or more transactions are treated as linked then the buyer pays any SDLT due on the total value of all linked transactions. This may mean that they pay a higher rate of SDLT than if the transactions are counted individually.

If all the properties that link are residential, apply the residential property rates to the linked transactions.

If all or any of the properties that link are non-residential, apply the non-residential property rates to the linked transactions.
SDLT transactions that count as linked

HMRC counts transactions as linked if:

there’s more than 1 transaction
the transactions are between the same buyer and seller or between people connected with either of them
the transactions are part of a single arrangement or scheme or part of a series of transactions

‘Connected persons’

A connected person could be your relative, eg brother, sister, parent, grandparent, husband, wife or civil partner - or one of their relatives.

If the buyer or seller is a business, a connected person would be a business partner and their relatives. It also includes companies and groups of companies who are connected to the business.
Different kinds of linked transactions

How and when you do a SDLT return depends on the kind of linked transaction you have.
Transactions linked as part of a single arrangement

Some transactions are linked because they’re part of the same single arrangement or scheme. It’s the same whether you document them separately or not. If each transaction has a separate contract, and if the sales are part of the same deal, they count as linked for SDLT.

If you sell a residential property in such a way that the one person buys the house but their relative buys the garden, the 2 transactions are linked. They’re connected people and they’re buying things from the same seller as part of a single deal.

Because the 2 transactions are linked, calculate the amount of tax due on the total chargeable consideration for all the transactions. Then, apportion this amount between the transactions in proportion to their share of the total chargeable consideration.
Transactions linked as part of a series of transactions

When a sale is followed by 1 or more related sales, if there’s something to link all the transactions together, they count as linked transactions for SDLT. There’s no limit to the length of time between the transactions.

Neil Patterson

11:22 AM, 30th September 2015
About 3 years ago

You also need to consider the costs of refinancing if you have borrowing and are transferring into a Ltd co.

Jon Pipllman

11:53 AM, 30th September 2015
About 3 years ago

Neil is right on SDLT - look at it carefully and seek proper professional advice. You could be liable for SDLT even if each property is under the threshold

As for the ltd co adding on a margin to the tradesman's bill, I see no issue with that.

Think about whether the £ involved is big enough to justify the costs and responsibilities of having a ltd, think about VAT and think about how to get the money out of the ltd. The pension route might not work as you intend if your only income is rent and you want to put big amounts in to the pension. Again, seek advice based on your own circumstances and objectives

12:35 PM, 30th September 2015
About 3 years ago

Thank you so much
I will only well one property a year so hopefully It will not trigger any Stamp Duty over the next few years
and when I do buy again after this dust settles I will purchase through my new Ltd Co
I don't see any great issues with Vat I will be well below the currant threshold
But I do agree with How do you get the money out of a LTD Co Now the dividend route has been made more difficult ???
My options I think are as follows
1 Fund a Pension
2 Run a Commercial Vehicle ie Landover Defender for business use
3 Take £8000 a year in PAYE with no NI to Pay staying below the threshold
If any one has any other thoughts on withdrawals in a tax efficat way let me know
Can a Co fund Private health insurance how would that ne taxed
I think the Co Route for me has got some good points and as I have said think I would have used this route even if the rules had not changed

safetylady silver

13:33 PM, 30th September 2015
About 3 years ago

Your company will have legal obligations, including all Health & Safety at Work legislation (which ONLY applies if you are self-employed or an employer - ie company, despite frequent rumours this applies to every landlord, it is only those 'at work' ie. running a business. As the government do not see being a landlord as running a business, many will be outside this scope.

You may have to pay yourself the minimum wage, and this is above the NI limit - get advice (and I have not been able to find out for sure).

13:40 PM, 30th September 2015
About 3 years ago

Reply to the comment left by "safetylady silver" at "30/09/2015 - 13:33":

oh I never thought of Min Wage lol
I haven't been employed for years
Maybe I need a Zero Hour contract too
If I did not have a min wage who would know ????
Its mad but the whole taxation thing is mad too

denis knockton

14:00 PM, 30th September 2015
About 3 years ago

The monies you put into the company i.e. your deposits towards the property and the portion of the purchase price you pay out of your own funds will be your loan to the company. You can access this money tax free as far as I know.

safetylady silver

14:47 PM, 30th September 2015
About 3 years ago

You are right - who would know, and the zero hours thing sounds like the solution! My accountant doesn't seem to care - "pay yourself £155 p wk" is the advice.
Just mention it as I hear in the wind that the govt are going to get fiercer on self-employed 'paying themselves' AT LEAST the minimum wage as they are fed up paying tax credits to low income businesses. Of course, if you are a company, that's not you, you are not s/e.

16:29 PM, 30th September 2015
About 3 years ago

Reply to the comment left by "denis knockton" at "30/09/2015 - 14:00":

Thank you for the info every bit helps

16:31 PM, 30th September 2015
About 3 years ago

Reply to the comment left by "safetylady silver" at "30/09/2015 - 14:47":

Thanks for the info

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